Can anyone suggest a category of business deductions in which to place "shareholder reimbursements?" I want to avoid listing that as a line item that appears on the last page. I'd prefer to include it in a larger group of deductions so it doesn't stick out. It's my understanding that the IRS likes to pay special attention to "reimbursements."
The answer to your question would depend on the nature of the expense for which the shareholders are being reimbursed. Did they provide services to the corporation? That would be compensation for services, not a reimbursement. Did they purchase something for use by the corporation? Then the item purchased should be recorded as an asset or it should be expensed.
To correctly analyze your business expenditures, you need to focus on the purpose for the payment, not the recipient of the funds.
If you are disbursing funds to shareholders for non-business purposes, those disbursements need to be properly recorded as dividends, if being paid out of current or accumulated earnings, or return of capital.
The answer to your question would depend on the nature of the expense for which the shareholders are being reimbursed. Did they provide services to the corporation? That would be compensation for services, not a reimbursement. Did they purchase something for use by the corporation? Then the item purchased should be recorded as an asset or it should be expensed.
To correctly analyze your business expenditures, you need to focus on the purpose for the payment, not the recipient of the funds.
If you are disbursing funds to shareholders for non-business purposes, those disbursements need to be properly recorded as dividends, if being paid out of current or accumulated earnings, or return of capital.
Thanks for your help! Followup: What if a shareholder helped pay electric bills? Would that be a reimbursed expense? If, on the other hand, a shareholder spent time scanning corporate receipts, would that be considered compensation and therefore taxable income? It's all a bit confusing. Thanks again!
It a shareholder is paying a bill for the corporation, the real question is, does the shareholder expect to be repaid? If yes, the shareholder advanced (loaned) money to the corporation. If no, the shareholder contributed additional capital to the corporation. If work is being done by a shareholder, and they are paid for that work, it is taxable compensation.